Record run for construction lending

Housing finance

Owner-occupier construction loans down in March.

• The number of new owner-occupier housing loans fell by 0.9 per cent in March.
• The number of loans by owner-occupiers for the construction of homes rose by 2.1 per cent in March – the 8^th consecutive monthly rise – the longest winning streak in records going back 25 years. The value of owner-occupier construction loans rose by 3.5 per cent in March.
• The ABS has released figures on property prices across the capital cities. The average price of a residential home (houses and units) across Australia is $546,500, up 8.8 per cent on a year ago.

• The latest housing data showed some consolidation in new lending in March. However the key is the new home building market and on that front the increase in construction loans is the jewel in the crown. Loans to build new homes have risen for the last eight straight months – the longest winning streak in records going back 25 years, and are up over 18 per cent on a year ago. An ongoing lift in construction finance is beneficial for the broader economy given that it is a key forward-looking indicator of home building.
• In February the value of loans committed to owner-occupiers to fund home construction hit record highs and while the value of loans by all borrowers (including investors) eased slightly in March, it was a healthy $2.4 billion, up over 20 per cent on a year ago. In short, more homes being built over the medium term will provide additional support to overall economic growth while also increasing housing supply, and keeping a lid on aggressive house price growth.
• And with interest rates low, population rising and housing affordability still attractive, housing is best placed to take over the leadership role from mining as the nation’s key economic driver. The ongoing lift in housing approvals, rising new home sales and higher house prices will support confidence and provide policymakers with a degree of encouragement.
• The Reserve Bank has discussed the need for interest rate stability and that should ensure that interest in property remains robust. The housing sector looks set to move ahead in leaps and bounds over the coming year. Overall the economic recovery will continue to remain patchy and as such we expect that the Reserve Bank will remain on the interest rate sidelines in the near-term.

What do the figures show?

Housing Finance:

• The number of new owner-occupier housing loans was down by 0.9 per cent in March to be up 7.3 per cent on a year ago. And the number of loans (52,013) was 17.2 per cent below the record high of 62,847 in July 2006. Excluding the refinancing of dwellings, loans were down by 0.9 per cent in March.
• The number of loans by owner-occupiers for the construction of homes rose by 2.1 per cent in March – the 12^th rise in 14 months. The value of construction loans lifted by 3.5 per cent in March after a 0.2 per cent fall in February.
• The number of loans by owner-occupiers to buy newly-erected dwellings rose by 1.6 per cent and the value of loans fell by 0.4 per cent.
• The number of loans by owner-occupiers for the purchase of established dwellings excluding refinancing fell by 1.8 per cent and the value of loans fell by 2.2 per cent in March.
• The number of refinancing transactions by owner-occupiers fell by 1.0 per cent while the value of transactions also fell by 1.3 per cent.
• The value of new housing commitments (owner occupier and investment) fell by 1.1 per cent in March with owner-occupier loans down by 1.2 per cent while investment loans fell by 0.8 per cent.
• The value of loans by owner-occupiers and investors to build new homes eased from record highs to $2.40 billion. Construction lending is up 20.7 per cent on a year ago.
• The proportion of first home buyers in the market rose from 12.5 per cent to 12.6 per cent in March, lifting marginally from the record low of 12.3 per cent in November although well below the long-term average of 20.0 per cent. Fixed rate loans fell from 15.1 per cent to 14.9 per cent of all loans in March. And the average home loan across Australia stood at $319,300 in March, up 6.0 per cent on a year ago.
• Housing Finance data is produced monthly by the Bureau of Statistics and shows commitments by lenders, such as banks, to provide finance for housing purposes. The lending figures relate to those looking to buy or build homes to live in as well as those seeking to buy or build homes for investment purposes. Generally people get their finance organised first, so the figures are regarded as a leading indicator on the housing market.
• Owner occupier home loans are healthy despite the latest pullback, while investors remain keen about putting their money to work in the housing market. In fact investor finance is up almost 28 per cent on a year ago. Certainly there are plenty of grounds for optimism with rising population, low interest rates, government grants for new construction and tight housing markets.
• The good news is that investors aren’t just buying established dwellings and driving up home prices, but money is being ploughed into new house and apartment developments and adding to housing supply and economic activity more generally. It is clear that home construction will play a key role in driving the broader economy in 2014, taking over from the mining sector. And arguably more industries and regions will feel the benefit of increased home building rather than mining construction.
• The Reserve Bank is comfortably on the interest rate sidelines. The patchiness of the domestic economy ensures rates remain low for an extended period. CommSec does not expect the first rate hike to take place till the latter part of 2014, when a lift in activity levels and stronger employment is firmly entrenched.

What is the importance of the economic data?

• Housing Finance data is produced monthly by the Bureau of Statistics and shows commitments by lenders, such as banks, to provide finance for housing purposes. The lending figures relate to those looking to buy or build homes to live in as well as those seeking to buy or build homes for investment purposes. Generally people get their finance organised first, so the figures are regarded as a leading indicator on the housing market.

What are the implications for interest rates and investors?

• Owner occupier home loans are healthy despite the latest pullback, while investors remain keen about putting their money to work in the housing market. In fact investor finance is up almost 28 per cent on a year ago. Certainly there are plenty of grounds for optimism with rising population, low interest rates, government grants for new construction and tight housing markets.
• The good news is that investors aren’t just buying established dwellings and driving up home prices, but money is being ploughed into new house and apartment developments and adding to housing supply and economic activity more generally. It is clear that home construction will play a key role in driving the broader economy in 2014, taking over from the mining sector. And arguably more industries and regions will feel the benefit of increased home building rather than mining construction.
• The Reserve Bank is comfortably on the interest rate sidelines. The patchiness of the domestic economy ensures rates remain low for an extended period. CommSec does not expect the first rate hike to take place till the latter part of 2014, when a lift in activity levels and stronger employment is firmly entrenched.